Blueknight Announces Fourth Quarter and Full Year 2017 Results

Source Press Release
Company Blueknight Energy Partners, L.P. 
Tags Financial & Operating Data
Date March 07, 2018

Blueknight Energy Partners, L.P. (“BKEP” or the “Partnership”) (Nasdaq: BKEP) (Nasdaq: BKEPP) today announced its financial results for the three and twelve months ended December 31, 2017.

Summary:

Results for the Quarter:

  • Net income of $0.4 million for the three months ended December 31, 2017, as compared to $2.0 million for the same period in 2016. Net income for the fourth quarter ended December 31, 2017, was impacted by a $2.4 million asset impairment charge related to the crude oil trucking and producer fieldservices business segment.
  • Operating income of $3.6 million for the three months ended December 31, 2017, as compared to $3.4 million for the same period in 2016.
  • Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) of $14.1 million for the fourth quarter ended December 31, 2017, as compared to $17.1 million for the same period in 2016.
  • Distributable cash flow of $8.6 million for the quarter ended December 31, 2017, as compared to $10.5 million for the same period in 2016. Adjusted EBITDA and distributable cash flow, including a reconciliation of such measures to net income, are explained in the section of this release entitled “Non-GAAP Financial Measures.”

Results for the Year:

  • Net income of $20.0 million for the twelve months ended December 31, 2017, as compared to a net loss of $4.8 million for the same period in 2016. Net income for the twelve months ended December 31, 2017, was impacted by a $2.4 million asset impairment charge related to the crude oil trucking and producer field services business segment. Net income for the twelve months ended December 31, 2016, was impacted by a $25.8 million asset impairment charge primarily associated with the cancellation of the Knight Warrior pipeline project.
  • Operating income of $28.8 million for the twelve months ended December 31, 2017, as compared to $6.5 million for the same period in 2016.
  • Adjusted EBITDA of $70.1 million for the twelve months ended December 31, 2017, as compared to $69.8 million for the same period in 2016.
  • Distributable cash flow of $48.2 million for the twelve months ended December 31, 2017, as compared to $46.6 million for the same period in 2016.
  • Distribution coverage ratio for the twelve months ended December 31, 2017, was approximately 1.0 times.

Additional information regarding the Partnership’s results of operations will be provided in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017, to be filed with the SEC on March 8, 2018.

Comments from BKEP CEO Mark Hurley:

“Highlighting our 2017 results is the 14% operating margin increase in our asphalt terminalling services segment. This increase, while impacted during the year by wetter-than-normal weather conditions, was achieved by solid throughput at our facilities and the full-year results of the nine terminals we acquired from Ergon in October 2016. Also, on December 1, 2017, we completed the acquisition of the Bainbridge, Georgia, terminal, which was the first drop-down from Ergon. The previously announced Muskogee, Oklahoma, asphalt terminal acquisition, while anticipated to close in 2017, closed earlier today after obtaining final regulatory approval. We are very pleased about the addition of the Muskogee facility to our terminal network as it will provide meaningful cash flow to our asphalt segment.

“In the crude oil terminalling services segment, while our Cushing terminal remained fully contracted throughout the year, a flat forward curve negatively impacted our storage rates as we renewed contracts during the year. As a result, terminalling services revenues and operating margin narrowed as compared to the prior year.

“Our crude oil pipeline business was impacted in 2017 by our out-of-service pipeline in Oklahoma, which limited our volumes. However, at year-end, I am pleased to report we secured an alternative route for our pipeline and construction has started with a return to service anticipated by the end of the second quarter of 2018. Once complete, we will nearly double our Oklahoma pipeline capacity and will be able to transport multiple grades of crude oil from the active producing regions of Oklahoma to our terminal in Cushing. The increased capacity comes at a time when increases in crude oil prices have bolstered producer and marketer confidence. Given the more favorable economics, we anticipate volumes to move higher in 2018. We also see trucking volumes increasing as we move into the first quarter of 2018. We expect both our pipeline and truck transportation businesses to see significant improvement in 2018, particularly in the second half of the year after restoration of service on our Oklahoma pipeline.

“In 2017, we took the opportunity to sell two non-strategic assets. We sold our 30% ownership in Advantage Pipeline and recorded a cash gain on the sale of $5.3 million in 2017. In January of 2018 we received a final payment of $2.2 million related to the sale. We also sold the East Texas pipeline system, receiving cash proceeds of approximately $4.8 million and recognizing a small gain on the transaction.

“While 2017 presented challenges in our crude oil businesses, we are optimistic for 2018. We intend to integrate our three crude oil business segments during the year which should increase utilization of our assets. The restoration of service on our Oklahoma pipeline will allow our customers to transport multiple grades of crude oil to Cushing, where they will be able to take advantage of our crude terminalling service offerings. We also expect to expand our crude oil marketing footprint to better utilize the capacity of our systems. The integration of our trucking fleet with our overall crude oil business in 2018 will also drive cost efficiencies. Over the past couple of years, we right-sized our fleet to better serve our Oklahoma pipeline assets and Kansas customers. As a result, we have successfully secured additional Oklahoma business as crude oil prices have improved. Some of this incremental Oklahoma business has been in the SCOOP and STACK areas, which overlaps with the pipeline we are putting back into service this year. We also continue to work on a substantial pipeline project in the STACK, and we expect both our trucking and storage businesses will benefit from the completion of this project. We expect both transportation businesses to return to positive cash flow in 2018.

“In addition to growth projects within the crude oil business and the acquisition of the Muskogee terminal, we have opportunities in front of us to acquire and/or construct additional product terminals. These transactions fit both our size and return profile. We anticipate capitalizing on one or more of these opportunities in 2018.

“Our fully-diluted distribution coverage ratio for 2017 and 2016 was 1.0 times. Our leverage ratio for the fourth quarter of 2017 was 4.6 times, and we maintained our common unit distribution at $0.1450 for the quarter.

“As we move into 2018, we are anticipating earnings growth over 2017. Excluding any additional projects, we anticipate asphalt operating margin in the $67.0 million to $70.0 million range in 2018, increasing from $64.6 million in 2017. We expect our crude oil businesses to exit 2018 on an annual operating margin run-rate of $18.0 million to $20.0 million, increasing to approximately $22.0 million to $24.0 million in 2019 based on stabilization of the crude oil storage market and increasing volumes on our Oklahoma pipeline systems.”

Results of Operations

The following table summarizes the Partnership’s financial results for the three and twelve months ended December 31, 2016 and 2017 (in thousands, except per unit data):

         
    Three Months
ended 
December 31, 
  Twelve Months
ended 
December 31, 
      2016        2017        2016        2017   
    (unaudited)         
Service revenue:                 
Third-party revenue    29,505      26,329      126,215      113,772   
Related-party revenue      11,606        15,077        30,211        56,688   
Product sales revenue:                 
Third-party revenue      4,910        2,842        20,968        11,479   
Total revenue      46,021        44,248        177,394        181,939   
Costs and expenses:                 
Operating expense      30,779        31,909        111,091        123,805   
Cost of product sales      3,341        2,324        14,130        8,807   
General and administrative expense      5,580        4,112        20,029        17,112   
Asset impairment expense      2,916        2,355        25,761        2,400   
Total costs and expenses      42,616        40,700        171,011        152,124   
Gain (loss) on sale of assets      23        11        108        (975 
Operating income      3,428        3,559        6,491        28,840   
Other income (expense):                 
Equity earnings in unconsolidated affiliate      397        —        1,483        61   
Gain on sale of unconsolidated affiliate      —        53        —        5,337   
Interest expense (net of capitalized interest of $0, $11, $41 and $18, respectively)      (1,813      (3,232      (12,554      (14,027 
Income (loss) before income taxes      2,012        380        (4,580      20,211   
Provision for income taxes      (61      (19      (260      (166 
Net income (loss)    1,951      361      (4,840    20,045   
                 
Allocation of net income (loss) for calculation of earnings per unit:                 
General partner interest in net income    142      167      433      944   
Preferred interest in net income    8,766      6,278      25,824      25,115   
Net loss available to limited partners    (6,957    (6,084    (31,097    (6,014 
                 
Basic and diluted net loss per common unit    (0.18    (0.15    (0.87    (0.15 
                 
Weighted average common units outstanding - basic and diluted      37,955        38,878        35,093        38,342   
                                 

The table below summarizes the Partnership’s financial results by segment operating margin, excluding depreciation and amortization for the three and twelve months ended December 31, 2016 and 2017 (dollars in thousands):

             
Operating Results    Three Months
ended 
December 31, 
  Twelve Months
ended 
December 31, 
  Favorable/(Unfavorable) 
      Three Months    Twelve Months 
(in thousands)      2016      2017        2016      2017                       
Operating margin, excluding depreciation and amortization                                 
Asphalt terminalling services operating margin    15,050    15,013      56,769    64,623      (37    —    7,854      14 
Crude oil terminalling services operating margin      4,741      3,961        20,048      17,977        (780    (16  )%      (2,071    (10  )% 
Crude oil pipeline services operating margin      453      (1,388      4,347      (1,700      (1,841    (406  )%      (6,047    (139  )% 
Crude oil trucking and producer field services operating margin      29      (17      1,829      (434      (46    (159  )%      (2,263    (124  )% 
Total operating margin, excluding depreciation and amortization    20,273    17,569      82,993    80,466      (2,704    (13  )%    (2,527    (3  )% 
                                 

The following table presents a reconciliation of adjusted EBITDA and distributable cash flow to net income (loss) for the periods shown (in thousands, except ratios):

         
    Three Months
ended 
December 31, 
  Twelve Months
ended 
December 31, 
      2016        2017        2016        2017   
Net income (loss)    1,951      361      (4,840    20,045   
Interest expense      1,813        3,232        12,554        14,027   
Income taxes      61        19        260        166   
Depreciation and amortization      8,372        7,554        30,820        31,139   
Non-cash equity-based compensation      1,578        547        3,417        2,280   
Asset impairment expense      2,916        2,355        25,761        2,400   
Fees related to the Ergon transactions      394        —        1,783        —   
Adjusted EBITDA    17,085      14,068      69,755      70,057   
Cash paid for interest      (3,326      (3,573      (12,404      (13,732 
Cash paid for income taxes      (23      14        (282      (158 
Maintenance capital expenditures, net of reimbursable expenditures      (2,862      (1,860      (8,724      (7,936 
Cash paid for fees related to the Ergon transactions      (394      —        (1,783      —   
Distributable cash flow    10,480      8,649      46,562      48,231   
                 
Distributions declared (1)    12,250      12,586      46,390      49,499   
Distribution coverage ratio      0.9        0.7        1.0        1.0   
                 

(1) Inclusive of preferred and common unit declared cash distributions. Distributions declared in the three- and twelve-month periods ended December 31, 2016, exclude $2.4 million of distributions paid to Vitol and Charlesbank in conjunction with the Partnership’s repurchase of 13.3 million Series A Preferred Units from  Vitol and Charlesbank; these distributions were reimbursed to the Partnership in the form of a capital contribution from Ergon.

The following table presents a reconciliation of total operating margin, excluding depreciation and amortization to operating income for the periods shown (dollars in thousands):

             
Operating Results    Three Months
ended 
December 31, 
  Twelve Months
ended 
December 31, 
  Favorable/(Unfavorable) 
      Three Months    Twelve Months 
(in thousands)      2016        2017        2016        2017                       
Total operating margin, excluding depreciation and amortization    20,273      17,569      82,993      80,466      (2,704    (13  )%    (2,527    (3  )% 
Depreciation and amortization      (8,372      (7,554      (30,820      (31,139      818      10      (319    (1  )% 
General and administrative expense      (5,580      (4,112      (20,029      (17,112      1,468      26      2,917      15 
Asset impairment expense      (2,916      (2,355      (25,761      (2,400      561      19      23,361      91 
Gain (loss) on sale of assets      23        11        108        (975      (12    (52  )%      (1,083    (1,003  )% 
Operating income    3,428      3,559      6,491      28,840      131        22,349      344 
                                                             

Investor Conference Call

The Partnership will discuss fourth quarter and full year 2017 results during a conference call on Thursday, March 8, 2018, at 11:00 a.m. CST (12:00 p.m. EST). The conference call will be accessible by telephone at 1-888-347-8968. International participants will be able to connect to the conference by calling 1-412-902-4231.

Participants should dial in five to ten minutes prior to the scheduled start time. An audio replay will be available through the investors section of the Partnership’s website for 30 days.

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd